Segment Zero: A Serious Threat to Microsoft?
From 1980 to 2011, Microsoft was entrenched as the dominant personal computer operating system, giving it enormous influence over many aspects of the compu- ter hardware and software industries (for the story of
Microsoft’s rise, see “The Rise of Microsoft” in Chapter 4).
Though competing operating systems had been in- troduced during that time (e.g., Unix, Geoworks,
NeXTSTEP, Linux, and the Mac OS), Microsoft’s share of the personal computer operating system market held stable at roughly 85 percent throughout most of that period. In 2011, however, Microsoft’s dominance in computer operating systems was under greater threat than it had ever been. A high-stakes race for dominance over the next generation of computing was well underway, and Microsoft was not even in the front pack.
“SEGMENT ZERO”
As Andy Grove, former CEO of Intel, noted in 1998, in many industries—including microprocessors, soft- ware, motorcycles, and electric vehicles—technologies improve faster than customer demands of those technologies increase. Firms often add features
(speed, power, etc.) to products faster than custom- ers’ capacity to absorb them. Why would firms pro- vide higher performance than that required by the bulk of their customers? The answer appears to lie in the market segmentation and pricing objectives of a technology’s providers. As competition in an industry drives prices and margins lower, firms of- ten try to shift sales into progressively higher tiers of the market. In these tiers, high performance and feature-rich products can command higher margins.
Though customers may also expect to have better- performing products over time, their ability to fully utilize such performance improvements is slowed by the need to learn how to use new features and adapt their work and lifestyles. Thus, while both the trajectory of technology improvement and the trajectory of customer demands are upward slop- ing, the
Microsoft’s rise, see “The Rise of Microsoft” in Chapter 4).
Though competing operating systems had been in- troduced during that time (e.g., Unix, Geoworks,
NeXTSTEP, Linux, and the Mac OS), Microsoft’s share of the personal computer operating system market held stable at roughly 85 percent throughout most of that period. In 2011, however, Microsoft’s dominance in computer operating systems was under greater threat than it had ever been. A high-stakes race for dominance over the next generation of computing was well underway, and Microsoft was not even in the front pack.
“SEGMENT ZERO”
As Andy Grove, former CEO of Intel, noted in 1998, in many industries—including microprocessors, soft- ware, motorcycles, and electric vehicles—technologies improve faster than customer demands of those technologies increase. Firms often add features
(speed, power, etc.) to products faster than custom- ers’ capacity to absorb them. Why would firms pro- vide higher performance than that required by the bulk of their customers? The answer appears to lie in the market segmentation and pricing objectives of a technology’s providers. As competition in an industry drives prices and margins lower, firms of- ten try to shift sales into progressively higher tiers of the market. In these tiers, high performance and feature-rich products can command higher margins.
Though customers may also expect to have better- performing products over time, their ability to fully utilize such performance improvements is slowed by the need to learn how to use new features and adapt their work and lifestyles. Thus, while both the trajectory of technology improvement and the trajectory of customer demands are upward slop- ing, the